The Research Of Currency Gradual Appreciation Model And The Appreciation Of Renminbi Currency

The appreciation of Renminbi currency has been a thorny problem between China and America, and it's also a problem that affects international political and economic relationship. The American side is now pressing the appreciation of Renminbi currency through political and economic means, but the Chinese side asserts that the price of Renminbi was not and is not being manipulated intentionally to give Chinese business unfair competitive advantage. The argument is still continuing. In the meantime, the appreciation of Renminbi currency has been on the way. From July 21, 2005, when the People's Bank of China declared that the price of Renminbi Currency would be based on the supply and demand of money market, the value of a basket of international currency and the system of managed flotation, to the end of 2006, the price of Renminbi has rose by more than 3%.And further appreciation is still expected. But scholars are still arguing about problems as equilibrium exchange rate of Renminbi currency, the extent by which the currency should rise, and the management of the appreciation process.By Adopting PPP theory, Interest rate parity theory, Marshall—Lerner Condition and Flexibility analysis, this essay constructed Currency Gradual Appreciation Model (CGAM) and then used it as a tool to research the process of the appreciation of Renminbi currency. The model use PPP theory to decide the equilibrium exchange rate of a currency. When great undervalue of the currency is detected, Flexibility analysis would be used to analyze the short term profit and loss of the appreciation process. In the process of the research, the author divides the influence of the appreciation process into short term and long term. When the short term profit (loss) is maximized (minimized), a gradual appreciation point could be computed, which would tell us the optimal appreciation rate for the short term. Moreover, the author contends that the long term influence of the appreciation, which is more uncertain, depends on the management of the process. Using CGAM as a tool for the appreciation of the Renminbi currency will not only benefit us for the short term but also give us some meaningful advice for the long term. The major work of the essay includes:1. Constructing CGAM with PPP theory, Interest rate parity theory, Marshall --Lerner Condition and Flexibility analysis.2. Analyzing the appreciation of Renminbi currency with CGAM, which includes deciding the equilibrium exchange rate, computing the optimal appreciation rate etc.3. Proposing short term and long term counteract and policy.4. Researching the expectation of the appreciation from the standpoint of Sino-US relation.